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The Money flow index (MFI) is an oscillator that ranges from 0 to 100. It is used to show the money flow (an approximation of the dollar value of a day's trading) over several days.
The steps to calculate the Money flow index over N daysEdit
Step 1: Calculate the typical priceEdit
Step 2: Calculate the positive and negative Money flowEdit
The Money flow for a certain day is typical price multiplied by volume on that day.
The Money flow is divided into positive and negative money flow.
- Positive money flow is calculated by adding the money flow of all the days where the typical price is higher than the previous day's typical price.
- Negative money flow is calculated by adding the money flow of all the days where the typical price is lower than the previous day's typical price.
- If typical price is unchanged then that day is discarded.
Step 3: Calculate the Money ratioEdit
The money ratio is the ratio of positive money flow to negative money flow.
Step 4: Calculate the Money flow indexEdit
The Money flow index can be expressed equivalently as follows.
This form more clearly shows what the MFI is a percentage of.
MFI is used to measure the "enthusiasm" of the market. In other words, the Money flow index shows how much a stock was traded.
A value of 80 or more is generally considered overbought, a value of 20 or less oversold. Divergences between MFI and price action are also considered significant, for instance if price makes a new rally high but the MFI high is less than its previous high then that may indicate a weak advance that is likely to reverse.
It should be noted that MFI is constructed in a similar fashion to the relative strength index (RSI). Both look at up days against total up and down days, but the scale, i.e. what is accumulated on those days, is volume (or dollar volume approximation rather) for the MFI, as opposed to price change amounts for the RSI.
Similar indicators Edit
Other price × volume indicators:
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